Introduction

Maintaining a balanced financial Portfolio is of more importance than the investment itself. The principal target is to involve a proper balance of risks and returns, involving a proper combination of several risky individual investments in a definite proportion, ensuring a balanced satisfactory return. To attain such a strategic portfolio, it is essential to diversify your funds in the best possible manner. Here, we will be focusing on balanced Asset Allocation through mutual funds. Even before investing, you can check out the prospective outcome of your investment(s) by using a mutual fund return calculator.

What is meant by asset allocation?

The procedure of investment followed by a concerned investor in various asset types, thereby creating and maintaining a balanced portfolio, is technically called asset allocation. You can achieve it by ensuring a diversified portfolio among several asset classes, as not all of them together perform well throughout. Here the key is diversification.

You can maintain a diversified strategy while investing exclusively in mutual funds too.

Building a balanced portfolio of investment

The primary step here is to check out your investment horizon, target, and risk appetite based on which you are supposed to proceed with your investment. With the perfect balance of equity and debt exposure, you can achieve your investment objectives. While allocating your assets, you have to consider the following factors:

1. Be definite regarding your investment horizon and targets
2. Proper and practical evaluation of risk appetite depending on your current financial status, income, and the market conditions
3. Account for capital needs

Another handy method for determining the perfect asset allocation is the rule of 110, i.e., 110-(your current age) = % of equity allocation.

Balancing your investment portfolio using mutual funds

Maintaining a balanced mutual fund strategy makes it far simpler to continue with portfolio diversification. As mutual fund investments get invested in a mix of equity and debt instruments, depending on particular ratios, it observes a satisfactory balance of risk and reward, ensuring satisfactory returns and prudent investment. However, before investing, you must critically consider two essential factors:

1. Fund orientation

There are two basic types of balanced fund options that you can choose from. One is debt-oriented funds, whose 65% portfolio is composed of money-market instruments and debt, while the remaining are either kept in cash or debt. The other type is an equity-oriented fund, whose 65% portfolio is comprised of equity assets while the rest is debt.

Irrespective of the market conditions, these ratios remain unaltered. Therefore, proper risk assessment is essential before choosing.

2. Investment timing

Balanced funds are a perfect suit for achieving financial objectives that you seek to fulfill within the subsequent five or seven years. With moderate capital appreciation, these are ideal for achieving short-term financial targets.

The thumb rule to attaining the ideal financial portfolio is to maintain a disciplined approach. You can even rebalance your portfolio if the current one is not in sync with your objectives and horizon.

Portfolio rebalancing

Financial experts always recommend portfolio rebalancing for improved risk control over particular asset class(es), fund type(s), or certain types of investment(s). Portfolio rebalancing is quite simple, where you need to change the load of several asset classes in case of underperformance of certain asset classes. You can check out the performance by using an online mutual fund return calculator and plan your next move.

Allocation strategy while portfolio rebalancing

Mutual fund portfolio rebalancing is only essential when it gets overexposed to a single type of asset class, deviating from the strategic asset allocation standards. When the market is bullish, the equity holdings will keep growing at a compounding rate, considering the allocation of debt funds, resulting in a potentially higher return. You can consider rebalancing your funds, maintaining a tolerance level of +/-10%.

The ideal strategy for asset allocation

Proper asset allocation needs you to keep certain factors in mind:

1. Don’t limit yourself: The initial step is to adapt yourself to the changing market conditions. Therefore, never box or limit yourself and eventually miss out on major opportunities.
2. Consider several factors: While carving out your asset allocation plan, you must carefully consider the current market scenario, your investment horizon, objectives, risk appetite, current financial condition, etc.
3. Several strategies for several goals: it is essential to maintain separate asset allocation strategies depending on your financial targets and objectives.
4. Regular monitoring and reviewing: It is very crucial to monitor your assets at certain intervals to understand the progress and consider rebalancing if necessary.

Conclusion

The above discussion sheds light on the important aspects of balancing and rebalancing your mutual fund and maintaining a balanced asset allocation in your investment portfolio. You can utilize a mutual fund return calculator to understand the scenario better.

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